Environment, Health, and Sustainable Development: The Role of Economic Instruments and Policies

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Economic instruments for environmental management

Recent developments in the application of environmental economics are relevant to the health sector, especially considering the structural adjustment processes that are under way in many developing countries. Environmental management is now widely regarded as an integral part of the development process. Increasing pressure on limited natural resources and on the ability of the planet to absorb waste material has led to growing concern that environmental degradation threatens the prospects for continued economic development worldwide. At the same time, there is increasing evidence of the significant and pervasive effects on the natural environment of policies at the macroeconomic and sectoral level. The environment therefore cannot be separated from economic issues. Recognition of this fact has helped to make environmental issues--and the use of economic instruments for environmental objectives--an important part of development planning and policy. While a great deal remains to be done, progress in this area is much more rapid than in the case of health objectives, even though the rationale for environmental improvement is often ultimately related to human health and well-being.

A distinction may be made between the two routes by which economic policies impact upon human health. The first consists of policies that affect health via changes in the level and distribution of income, and thus the ability of people to purchase adequate food, shelter, nutrition and health services. This is part of mainstream health economics, and is not addressed in the present article. The second route, which is the main focus of this review, is via changes in the natural environment. Two types of economic instrument for environmental management are referred to in this paper: (a) those with explicit environmental objectives, such as pollution taxes; and (b) the environmental consequences of sectoral and macroeconomic policies.

Explicit instruments

Government intervention in the economy is required where market systems fail to allocate resources in an efficient or equitable manner, the classic example being environmental degradation caused by the discharge of waste material into waterways or the atmosphere. Such intervention may be by use of economic instruments or regulatory instruments. Traditionally, governments have relied almost exclusively upon regulatory methods, e.g., by setting standards for the emission of effluents, and for ambient quality. In recent years, however, growing attention has been paid to the use of economic instruments for environmental management. Compared with the regulatory approach, effluent or emission charges based on the damage caused by the effluents discharged by industry have the potential advantage of ensuring that ambient quality standards are achieved at least cost to society as a whole because it gives each discharger the opportunity to weigh the costs of the damage against the costs of taking remedial abatement measures. Another advantage of charges is of course that they raise revenues, which may or may not be used for pollution control purposes by the government.

In practice, effluent or emission charges reflecting damage costs are rarely used in both industrialized and developing countries. One reason for this is the difficulty of monitoring large numbers of waste dischargers. There is, however, a growing recognition of the potential importance of economic instruments as a means of controlling environmental pollution, and one answer to the monitoring problem is to use other measures, for example, taxes on materials used in industrial processes, which are presumed to be emitted later on in the form of pollutants. Such indirect methods of levying pollution fees (otherwise known as presumptive taxes) are becoming common in the industrialized countries. Examples include taxes on gasoline, pesticides, fertilizers, lubricating oils, or on the sulfur content of coal. …